Can Saga's share price continue to smash the FTSE 100?

The Motley Fool

In the last three months, the Saga(LSE: SAGA) share price has outperformed the FTSE 100 by around 4%. The over-50s product specialist has become increasingly popular among investors, with the market seemingly pricing in the potential for a successful recovery after a difficult period.

Clearly, there are other stocks that have experienced challenging operational and financial performances in recent periods. Reporting on Monday was one company that may also offer scope to beat the FTSE 100 over the medium term.

Improving outlook

Despite releasing a profit warning towards the end of 2017, Saga's outlook remains generally positive. Its recent trading update showed that demand for its insurance policies and travel division offerings have been strong. And they could help to drive its overall growth further.

Of course, the company continues to benefit from a strong global economic outlook. Even though Brexit has caused some uncertainty in the UK, encouraging performances from the US and China are expected to continue through 2018 and into 2019. This could lead to continued high demand for the company's products and services. And with global demographics in its favour (a growing, ageing population) it could enjoy a tailwind over the coming years.

Investment potential

Clearly, Saga's forecast decline in earnings of 4% in the current year would be a disappointing result. However, it's expected to return to positive growth next year. And with the stock trading on a price-to-earnings (P/E) ratio of around 10.5, it could offer a wide margin of safety. With the company having made significant investment in its growth opportunities, as well as conducting a refresh of its senior management team in recent months, now could be a good time to buy for the long run.

Recovery prospects

Also offering the potential to outperform the FTSE 100 after a challenging period is aerospace and defence products supplier Meggitt(LSE: MGGT). The company released positive news on Monday, upgrading revenue guidance for the 2018 financial year. It's experienced strong trading in the second quarter of the year, with good growth delivered in its Civil Aftermarket, Military and Energy segments.

The company now expects organic revenue growth of 4-6% for the full year. This is up from previous guidance of 2-4% and could help to boost its profitability over the coming months. And if trading continues to be positive, further upgrades could be ahead in future quarters.

With the defence sector expected to experience a significant improvement on previous years due to higher military spending in the US, Meggitt could offer growth potential. It trades on a relatively high P/E ratio of 16 at the present time. But with its bottom line expected to grow in 2019, alongside a seemingly solid strategy, the prospects for the business appear to be encouraging for long-term investors.

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Peter Stephens owns shares of Saga. The Motley Fool UK has recommended Meggitt. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.